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If the U.S. economy is in good shape, why is the Federal Reserve cutting interest rates?

Posted on by • Posted in Federal Reserve Board, Inflation, Unemployment, Wall Street • Leave a comment

https://www.washingtonpost.com/business/2019/07/31/if-us-economy-is-good-shape-why-is-federal-reserve-cutting-interest-rates/?utm_term=.1346fb3da080&wpisrc=nl_most&wpmm=1

Federal Reserve Board Chair Jerome Powell speaks during a Senate Banking Committee hearing on July 11.

The Federal Reserve is all but certain Wednesday to do something it hasn’t done in more than a decade: cut interest rates. The question on a lot of people’s minds is why.

Lowering interest rates, the Fed’s main way to boost the economy, is typically used in dire times, which it’s difficult to argue the United States is experiencing right now. Instead, top Fed officials are defending this as an “insurance cut” that’s akin to an immunization shot in the arm. They want to counteract the negative effects of President Trump’s trade war and prevent the United States from catching the same cold that Europe, China and elsewhere seem to have.

The Fed’s big decision comes at 2 p.m. Wednesday and will be followed by a 2:30 p.m. news conference from Fed Chair Jerome H. Powell, a frequent target of Trump’s criticism.

The Fed is widely expected to do a modest cut on Wednesday, probably lowering the benchmark interest rate from about 2.5 percent down to just shy of 2.25 percent. But the Fed seldom does just one cut, which is why Trump, Wall Street and much of the world will be listening closely to Powell for signs of when another cut is likely.

Wall Street is pricing in that the Fed will lower interest rates to about 1.75 by the end of the year, a far more dramatic move. And Trump has been blasting the Fed for months, saying he wants to see a “large” cut.

“The Fed is often wrong,” Trump said this week, reiterating his view that the stock market would be up 10,000 more points if the Fed had not raised interest rates four times last year. “I’m very disappointed in the Fed. I think they acted too quickly, by far. I think I’ve been proven right.”

But there are plenty of economists and prominent investors saying the Fed shouldn’t cut at all because it is not justified and will look as though the Fed is caving in to Trump’s bullying — or Wall Street’s.

“I have to conclude the Fed has lost some independence here,” said Blu Putnam, chief economist at CME Group.

The last time the Fed cut rates was in December 2008, when unemployment was over 7 percent (and rising quickly), the stock market had lost a third of its value, and a major financial institution, Lehman Brothers, had just declared bankruptcy, rocking the financial system.

Today unemployment is at a half-century low (3.7 percent), the economy is growing at a healthy pace (over 2 percent) and the stock market is sitting at record highs.

Congress gave the Fed two mandates: to keep unemployment low and prices stable. By about any measure one can look at, the Fed has achieved those goals. The job market is strong, and inflation remains surprisingly low.

The world will be listening closely for Powell’s rationale for lowering rates during fairly good economic times — and for his signal about whether another cut is coming in the fall.

It’s a tricky calculus. The one thing nearly everyone agrees on is this would be the biggest gamble yet for Powell, who took over as the central bank’s chair in early 2018.

The likely cut on Wednesday should make loans a little cheaper for businesses and Americans looking to buy homes and cars or start a company. But realistically, one cut won’t do much. The reason the stock market has rallied sharply in recent weeks is an expectation that this is the first of several cuts.

If the Fed does not do three cuts this year, the market could pull back, making financial conditions “tight” again, even though the Fed is cutting rates to try to loosen conditions.

Top Federal Reserve leaders see three key reasons to cut now.

1. Trump’s trade war. There is concern about the trade war, as well as weakness overseas, dragging down the U.S. economy. A closer look at the U.S. economy reveals there are already a few yellow, if not red, flags. Manufacturing was in a “technical recession” the first half of the year, the housing market remains sluggish, and business investment tanked in the spring as corporate leaders grow more wary of the ongoing trade tensions.

Powell and Fed Vice Chair Richard Clarida refer to these as “head winds” and “downside risks” that are picking up, and they prefer to address them before they grow into deeper problems. Clarida often points to 1995, when the Fed did three modest rate cuts (starting in July 1995 and ending in January 1996) that helped keep the economy growing for years to come.

2. The Fed needs to act sooner rater than later. New York Fed President John Williams, among others, has made the case that the Fed has limited medicine in the medicine cabinet to aid the economy and that it’s better to administer the pills at the first signs of trouble rather than waiting for full-blown illness when there might not be enough medicine left to make a difference. “When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress,” Williams said in a speech earlier this month.

Interest rates are very low by historical standards. For example, the benchmark rate was over 5 percent before the Fed started reducing it in 2007. Now the benchmark rate is half that amount, meaning there will be less stimulus this time around from cutting rates.

3. Inflation is too low. The Fed wants to see inflation of about 2 percent a year. For the past several years, it’s been running below that threshold and is currently sitting around 1.6 percent. Some Fed leaders, such as St. Louis Fed President James Bullard, say the Fed should cut rates to try to run the economy a bit hotter to boost inflation. They see little risk in doing this since inflation is so low, but they see great risk in not getting inflation back to target because business leaders will stop believing that 2 percent is the true target if it is never achieved.

While there are reasons to cut, some Fed leaders, including Boston Fed President Eric Rosengren and Kansas City Fed President Esther George, have raised doubts about whether it makes sense to cut now, before there are clear signs of trouble in the United States.

Rosengren has warned in recent speeches that insurance cuts do not come without a cost. Keeping rates low tends to spur bubbles that can come back to harm the economy later on. Already there are concerns about too much risky corporate lending, and lower rates are only likely to encourage more of those loans. He and others have also pointed out that using up the medicine now doesn’t leave much left to fight worse problems later on.

There are 10 members on the Fed’s committee that decides interest rate policy, and they do not appear to be in unison on this decision, let alone what to do in the fall, a reminder of just how much debate there is about the right course of action.

The U.S. economy is in the midst of a record-breaking expansion that has been growing for more than a decade, the longest expansion in U.S. history. Powell says keeping it going is his top goal.

 

 

 

How a Medicare Buy-In or Public Option Could Threaten Obamacare

Posted on by • Posted in 2020 Election Issues, ACA, Health Insurance Coverage Adequacy, Health Insurance Industry, Health Policy, Medicare, Medicare Buy-In, Medicare for All, Pharmaceutical Industry, Public Option • Leave a comment
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Some Democrats are proposing a government alternative to private insurance. But allowing people to choose such a plan may destabilize the A.C.A., some experts say.

It seems a simple enough proposition: Give people the choice to buy into Medicare, the popular federal insurance program for those over 65.

Former Vice President Joseph R. Biden Jr. is one of the Democratic presidential contenders who favor this kind of buy-in, often called the public option. They view it as a more gradual, politically pragmatic alternative to the Medicare-for-all proposal championed by Senator Bernie Sanders, which would abolish private health insurance altogether.

A public option, supporters say, is the logical next step in the expansion of access begun under the Affordable Care Act, passed while Mr. Biden was in office. “We have to protect and build on Obamacare,” he said.

But depending on its design, a public option may well threaten the A.C.A. in unexpected ways.

A government plan, even a Medicare buy-in, could shrink the number of customers buying policies on the Obamacare markets, making them less appealing for leading insurers, according to many health insurers, policy analysts and even some Democrats.

In urban markets, “a public option could come in and soak up all of the demand of the A.C.A. market,” said Craig Garthwaite, a health economist at the Kellogg School of Management at Northwestern University.

And in rural markets, insurers that are now profitable because they are often the only choices may find it difficult to make money if they faced competition from the federal government.

Some insurers could decide that a smaller and uncertain market is not worth their effort.

If the public option program also matched the rates Medicare paid to hospitals and doctors, “I think it would be really hard to compete,” Mr. Garthwaite said. Even leading insurers do not have the leverage to demand lower prices from hospitals and other providers that the government has.

Whether to implement a public option or Medicare buy-in has become a defining question among Democratic presidential candidates and is likely to be a contentious topic at this week’s debates.

On Monday, Senator Kamala Harris took an alternate route, unveiling a plan that would allow private insurers to participate in a Medicare-for-all scheme, akin to their role currently offering private plans under Medicare Advantage.

The recent spate of proposals reprises some of the most difficult questions leading up to the passage of the A.C.A., in many ways a compromise over widely divergent views of the role of the government in ensuring access to care.

After a shaky start, the federal and state Obamacare marketplaces are surprisingly robust, despite repeated attempts by Republicans to weaken them. They provide insurance to 11 million customers, many of whom receive generous federal subsidies to help pay for coverage.

The A.C.A. is now a solidly profitable business for insurers, with several expanding options after earlier threats to leave. For example, Centene, a for-profit insurer, controls about a fifth of the market, offering plans in 20 states. It is expected to bring in roughly $10 billion in revenues this year by selling Obamacare policies.

In spite of stock drops because of investors’ concerns over Medicare-for-all proposals, for-profit health insurers have generally thrived since the law’s passage.

But a buy-in shift in insurance coverage could profoundly unsettle the nation’s private health sector, which makes up almost a fifth of the United States economy. Depending on who is allowed to sign up for the plan, it could also rock the employer-based system that now covers some 160 million Americans.

In a recent ad, Mr. Biden features a woman who wants to keep her current coverage. “I have my own private insurance — I don’t want to lose it,” she said.

A spokesman for Mr. Biden argued that a public option can extend the success of the Affordable Care Act.

“Joe Biden thinks it would be an egregious mistake to undo the A.C.A., and he will stand against anyone — regardless of their party — who tries to do so,” said Andrew Bates, a spokesman for Mr. Biden, in an email.

Major insurers and hospital chains, pharmaceutical companies and the American Medical Association have joined forces to try to derail efforts like Medicare-for-all and the public option. Mr. Sanders denounced these powerful interests in a recent speech.

“The debate we are currently having in this campaign and all over this country has nothing to do with health care, but it has everything to do with the greed and profits of the health care industry,” he said.

Other critics of the public option, including Seema Verma, the administrator of the Centers for Medicare and Medicaid Services, argue Democrats’ programs will lead to a “complete government takeover.”

“These proposals are the largest threats to the American health care system,” she said in a speech earlier this month.

Some experts predict that private insurers will adapt, while others warn that the government could wind up taking on the sickest customers with high medical bills, leaving the healthier, profitable ones to private insurers.

It’s uncertain whether hospitals, on the other hand, could thrive under some versions of the public option. If the nation’s 5,300 hospitals were paid at much lower rates by a government plan — rates resembling those of Medicare — they might lose tens of billions of dollars, the industry claims. Some would close.

One variant of the public option — letting people over 50 or 55 buy into Medicare — is often depicted as less drastic than a universal, single-payer program. But this option would also be problematic, experts said.

This consumer demographic is quite valuable to insurers, hospitals and doctors.

Middle-aged and older Americans have become the bedrock of the Obamacare market. Some insurers say this demographic makes up about half of the people enrolled in their A.C.A. plans and, unlike younger people who come and go, is a reliable and profitable source of business for the insurance companies.

The aging-related health issues of people in this group guarantee regular doctor visits for everything from rising blood pressure to diabetes, and they account for a steady stream of lucrative joint replacements and cardiac stent procedures.

The 55-to-64 age group, for example, accounts for 13 percent of the nation’s population, but generates 20 percent of all health care spending, according to the Kaiser Family Foundation.

Health Spending

People age 55–64 are responsible for one fifth of total health spending and account for a sizable share of the private insurance market. People 65 and older are eligible for Medicare and account for one third of total spending.

Several experts said that designing a buy-in program that is compatible with the existing public and private plans could be daunting.

“You’d have to do it carefully,” said Representative Donna Shalala, a Florida Democrat who served as the secretary of health and human services under President Bill Clinton.

Linda Blumberg, a health policy expert at the Urban Institute, a nonpartisan think tank, agreed. “The idea of Medicare buy-ins was taken very seriously before there was an Affordable Care Act,” she said. “In the context of the A.C.A., it’s a lot more complicated to do that.”

Many dismiss concerns about whether insurers can compete.

“Any time a market shrinks in America, insurers don’t like it,” said Andy Slavitt, the former acting Medicare administrator under President Obama and a former insurance executive. Mr. Slavitt noted that insurers raised similar concerns about the federal law when it was introduced. “They’ll figure it out,” he said.

In Los Angeles County, five private insurers that sell insurance in the A.C.A. market already compete with L.A. Care Health Plan, which views itself as a kind of public option, said John Baackes, the plan’s chief executive.

The insurer offers the least expensive H.M.O. plan in the county by paying roughly Medicare rates. “We’ve proved that the public option can be healthy competition,” he said.

But the major insurance companies, which were instrumental in defeating the public option when Congress first considered making it a feature of the A.C.A., are already flexing their lobbying muscle and waging public campaigns.

In Connecticut, fierce lobbying by health insurers helped kill a state version of the public option this spring. Cigna resisted passage of the bill, threatening to leave the state. “The proposal design was ill-conceived and simply did not work,” the company said in a statement.

Blue Cross plans could lose 60 percent of their revenues from the individual market if people over 50 are shifted to Medicare, said Kris Haltmeyer, an executive with the Blue Cross Blue Shield Association, citing an analysis the company conducted. He said it might not make sense for plans to stay in the A.C.A. markets.

Siphoning off such a large group of customers could also lead to a 10 percent increase in premiums for the remaining pool of insured people, according to the Blue Cross analysis. More younger people with expensive medical conditions have enrolled than insurers expected, and insurers would have to increase premiums to cover their costs, Mr. Haltmeyer said.

Tricia Neuman, a senior vice president at the Kaiser Family Foundation, which studies insurance markets, said a government buy-in that attracted older Americans could indeed raise premiums for those who remained in the A.C.A. markets, especially if those consumers had high medical costs.

But some experts countered that prognosis, predicting that premiums could go down if older Americans, whose health care costs are generally expensive, moved into a Medicare-like program.

“The insurance companies are wrong about opposing the public option,” Ms. Shalala said.

Dr. David Blumenthal, the president of the Commonwealth Fund, a foundation that funds health care research, said a government plan that attracted people with expensive conditions could prove costly.

“You might, as a taxpayer, become concerned that they would be more like high-risk pools,” he said.

Jonathan Gruber, an M.I.T. economist who advised the Obama administration during the development of the A.C.A., likes Mr. Biden’s plan and argues there is a way to design a public option that does not shut out the private insurers.

“It’s all about threading the needle of making a public option that helps the failing system and not making the doctors and insurers go to the mat,” he said.

Many experts point to private Medicare Advantage plans, which now cover one-third of those eligible for Medicare, as proof that private insurers can coexist with the government.

But the real value of a public option, some say, would stem from the pressure to lower prices for medical care as insurers were forced to compete with the lower-paying government plans, like Medicare.

Washington State recently passed the country’s first public option, capping prices as part of its plan to provide a public alternative to all residents by 2021.

“It’s couched in this language in expanding coverage, but it does it by regulating prices,” said Sabrina Corlette, a health policy researcher at Georgetown University.

The hospital industry would most likely fight just as hard to defeat any proposal that would convert a profitable group of customers, Americans who are privately covered at present, into Medicare beneficiaries.

Private insurers often pay hospitals double or triple what Medicare pays them, according to a recent study from the nonprofit Rand Corporation.

While Ms. Shalala supports a public option as an alternative to “Medicare for All,” she is clear about how challenging it will be to preserve both Obamacare and the private insurance market. “You can’t do it off the top of your head,” she said.

 

HCA Misses on Key Financials, Stock Drops Sharply

Posted on by • Posted in For-Profit, Health System, Hospital, Hospital Industry, Operating Margin, Operating Performance • Leave a comment

https://www.healthleadersmedia.com/finance/hca-misses-key-financials-stock-drops-sharply

The Nashville-based for-profit hospital operator’s revenues went up slightly, but other metrics missed the mark.

Though HCA Healthcare’s total revenues increased to $12.6 billion in Q2, the company missed on other key areas, according to its latest earnings released Tuesday morning.

HCA reported a net income of $783 million, down from $820 million this time last year, and an adjusted EBTDA of $2.29 that was better than Q2 2018 but fell from Q1 2019.

The Nashville-based for-profit hospital operator’s financial numbers from Q2 sent its stock tumbling in early morning trading, where it was down more than 10% by 10 a.m.  

Same facility admissions and same facility equivalent admissions each rose by 2.1% and 2.6%, respectively, while same facility emergency room visits jumped 3% year-over-year.

However, growth in same facility outpatient surgeries and same facility revenues per equivalent admission slowed in Q2 while same facility inpatient surgeries declined 0.1%.

The company updated its financial guidance in light of its Q2 results, projecting diluted earnings per share in a range between $10.25 and $10.65.

HCA had two major developments in Q2, asking a federal judge to dismiss a class action lawsuit alleging unfair billing practices at three Florida hospitals and its acquisition of 24 MedSpring urgent care centers from Fresenius Medical Care.

ADDITIONAL HCA Q2 EARNINGS REPORT HIGHLIGHTS:

  • Salaries, benefits, supplies, and other operating expenses accounted for 81.9% of revenues, down from 80.8% this time last year.
  • The company repurchased $242 million worth of stock in Q2 and has just over $1.75 billion remaining under its existing repurchase agreement.
  • The company also declared a quarterly cash dividend of $0.40 per share to be paid on September 30.
  • By the end of Q2, HCA was operating 184 hospitals, down from 185 hospitals at the end of Q2.

For complete financial information, review HCA Healthcare’s filing with the Securities and Exchange Commission.

 

 

 

Hackensack Meridian acquires three northern NJ nursing homes

Posted on by • Posted in Health System, Hospital, Hospital Industry, Mergers & Acquisitions, Nursing Home, Post Acute Care • Leave a comment

https://www.crainsnewyork.com/health-pulse/hackensack-meridian-acquires-three-northern-nj-nursing-homes?utm_source=health-pulse-wednesday&utm_medium=email&utm_campaign=20190730&utm_content=hero-readmore

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Hackensack Meridian Health, the 17-hospital system in New Jersey, said Tuesday that it has added three nearby nursing homes to its network as it looks to better coordinate hospital and post-acute care.

The nursing homes are the 210-bed Prospect Heights Care Center in Hackensack, the 180-bed Regent Care Center in Hackensack and the 180-bed West Caldwell Care Center in West Caldwell. Prospect Heights is exclusively a subacute-care facility that provides rehab services after people leave the hospital. The facilities have a combined 750 employees.

Hackensack Meridian acquired 100% of Regent Care and 51% each of Prospect Heights and West Caldwell in a deal valued around $65 million, including cash and the assumption of debt. Tandem Management Co. owned all three facilities and will continue as a joint partner in Prospect Heights and West Caldwell.

With the deal, Hackensack Meridian now operates 13 post-acute-care facilities and has rebranded the new additions under the system’s name.

“Patients are staying fewer and fewer days in acute-care facilities,” said Robert Garrett, CEO of Hackensack Meridian Health. “Changes in technology are allowing patients to go home quicker even after receiving pretty intense care and receiving complicated procedures. The best way to ensure that there is a good hand-off is if we own and operate these post-acute-care facilities.”

Hospitals can benefit from having a strong relationship with the nursing homes they refer people to by avoiding federal readmission penalties.

Garrett said the deal will make it easier to find a nursing home bed for patients ready to be discharged and free up beds for patients waiting in the hospital’s emergency department. Hackensack Meridian Medical Center is about a mile away from two of the nursing homes.

The system did not commit a defined amount to capital improvements but plans to make significant investments in the facilities’ IT systems so they can share electronic medical records with its hospitals, said Stephen Baker, Hackensack Meridian’s president of post-acute care.

Baker said Hackensack Meridian’s staffing model is different from other nursing homes in that its facilities use mostly registered nurses; other nursing homes use mostly licensed practical nurses. Its patients tend to be more complex, which allows the system’s facilities to receive higher payments from Medicare. Some of its facilities earn 50% to 60% from Medicaid, which typically pays lower rates.

“We’re able to subsidize lower rates with higher rates from subacute care and favorable rates from managed care organizations,” Baker said. —Jonathan LaMantia

 

 

 

 

Hospital billing is big business

Posted on by • Posted in Health System, Hospital, Hospital Industry, Private Equity, Rev Cycle Management • Leave a comment

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Health care’s administrative back end — services like verifying patients’ insurance, putting patients on payment plans and collecting patient debt — is bigger than ever, Axios’ Bob Herman reports.

The big picture: The U.S.’ fractured insurance system leads hospitals and doctors to spend tens of billions of dollars annually on billing software and services — none of which are tied to actual health care.

Driving the news: For-profit hospital system Tenet Healthcare decided to spin off its billing services unit, Conifer, into its own publicly traded entity in 2021.

Between the lines: Many hospital systems that send out bills have ownership stakes in these companies.

  • Tenet controls 76% of Conifer, which registered $1.5 billion of revenue last year. Catholic Health Initiatives owns the remaining 24%. They both use Conifer.
  • Catholic health system Ascension and private equity firm TowerBrook hold a majority stake in R1 RCM, which used to be named Accretive Health and was prohibited from doing business in Minnesota due to its aggressive collections practices. Two Ascension executives sit on R1’s board.
  • Bon Secours Mercy Health recently sold off a majority stake in its billing firm, Ensemble Health Partners, for $1.2 billion, the Wall Street Journal reported.

Researchers have cited administrative costs as a sizable source of health care waste. Some startups are trying to address this issue, but traditional billing and service firms are only getting larger and have providers as investors.